If your grandmother is entitled to the house then she should qualify for the exemption between husband and wife and the house should be free from inheritance tax.
If not then, yes, there will be inheritance tax, of the scale you indicate, on your grandfather's death.
The solution in these circumstances is for the property to be wholly owned by a non-UK company which is itself owned by a trust set up by a non-UK domiciled individual. The ownership by a non-UK company means that, instead of the house being an asset that is in the UK, what is owned is shares in a company and those shares are outside the UK.
The trust can then take advantage of the inheritance tax rule that assets that are outside the UK, that are owned by a trust created by a non-UK domiciled person, are "excluded property" and free of inheritance tax.
It is probably worth taking steps now to set up this kind of arrangement to prevent there being inheritance tax on the house on your grandmother's death.
Trusts are complicated vehicles and you need good professional advice in order not to fall into the many traps in UK legislation.
If you would like to know how my firm might help, do let me know.
Anthony Nixon CTA TEP Solicitor
Partner, Thomas Eggar LLP,
023 8083 1224